Kosciusko Thredbo Pty. Limited v. Federal Commissioner of Taxation.

Judges:
Mason CJ
Wilson J
Brennan J
Dawson J
Gaudron J

Court:
Full High Court

Judgment date: Judgment handed down 23 December 1987.

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Mason C.J., Wilson, Dawson and Gaudron JJ.

By Deed made 29 June 1962 between the then Minister for Lands of the State of New South Wales ("the Minister"), the Kosciusko State Park Trust ("the Trust") and Kosciusko Thredbo Pty. Limited ("the taxpayer") the taxpayer became the lessee from the Minister of a substantial tract of land in the Kosciusko State Park.

Since 1962 the taxpayer has made a number of improvements on the land. In the income years ended 30 June 1978, 1979, 1980 and 1981, the taxpayer sought, for the purposes of the assessment of tax payable on its income, to deduct from its income a proportionate part of expenditure incurred in making improvements on the land claiming that the deductions were authorised by sec. 88(2) of the Income Tax Assessment Act 1936 (Cth) ("the Assessment Act"), which relevantly provides:

"Where a taxpayer, who in the year of income is a lessee of land used for the purpose of producing assessable income has, either before or after the commencement of the lease, incurred expenditure in making improvements not subject to tenant rights on that land, and such improvements -

• (a)...
• (b)...
• (c) have been made with the written consent of the lessor given after the commencement of this Act,

a proportionate part of the amount of that expenditure arrived at by distributing that amount proportionately over the period of the lease unexpired at the date when the expenditure was incurred, shall be an allowable deduction. In calculating the deduction under this sub-section, expenditure in excess of the amount, if any, specified in the agreement for the lease, or in the lease, or in the lessor's consent, shall not be taken into account."

Section 88(3) of the Assessment Act specifies certain exceptions to sec. 88(2) but those exceptions are not relevant to the present case.

The improvements in respect of which proportionate deductions were claimed were made after 22 October 1964 and are allowable only if sec. 83AA(4) of the Assessment Act is satisfied. That subsection provides:

"Where, after 22 October 1964, improvements are made on land the subject of a lease with the written consent of the lessor of that land, sections 85, 87 and 88 do not apply in relation to those improvements unless -

• (a) the written consent was given on or before that date; or
• (b) the Commissioner is satisfied that, on or before that date, the lessor had agreed, whether absolutely or subject to conditions, to give that consent and the written consent was given within a period after that date that the Commissioner, on the joint application in writing of the lessor and the lessee made not later than 60 days from that date or within such further time as the Commissioner allows, has approved (whether before or after the giving of the consent) as reasonable for the purposes of this sub-section."

The Commissioner of Taxation ("the Commissioner") disallowed a number of claimed deductions including certain proportionate deductions claimed pursuant to sec. 88(2) of the Assessment Act on the basis that neither para. (a) nor (b) of sec. 83AA(4) applied to them. It is not in issue that if either para. (a) or (b) is satisfied the taxpayer is in all other respects entitled to proportionate deductions pursuant to sec. 88(2) of the Assessment Act.

An appeal by the taxpayer to the Supreme Court of New South Sales ( Rogers J.) [reported at 84 ATC 4043] was upheld in so far as it concerned the disallowance of deductions claimed pursuant to sec. 88(2) of the Assessment Act. An appeal by the Commissioner from that decision to the Federal Court of Australia [reported at 85 ATC 4829] was upheld by majority ( Toohey and Wilcox JJ., Bowen C.J. dissenting) save in respect of a claimed deduction for $2,121 in the income year ended 30 June 1981 in relation to the

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preliminary costs of certain subdivision works. From that decision the present appeal is brought by the taxpayer.

The primary contention of the taxpayer is that the written consent of the Minister, as lessor, to all the improvements in respect of which deductions were claimed was contained in the Deed made on 29 June 1962, and thus fell within the terms of para. (a) of sec. 83AA(4) of the Assessment Act, as was held by Rogers J. in the Supreme Court of New South Wales and by Bowen C.J. in the Federal Court of Australia. The taxpayer also relied on para. (b) of the subsection by reference to a joint application made by the Minister and the taxpayer on 23 March 1965 covering improvements specified in Sch. A and B to that application. Schedule A listed improvements shown on a master plan; Sch. B listed other improvements which were said to be "the subject of the lessor's consent being covered by the terms of Clause 4(6) and (7) of the document of lease". On 21 April 1965 the Commissioner accepted the joint application "as satisfying the requirements of sec. 83AA(4)(b) only in so far as it related to the item [sic] shown on the master plan and particularised in Schedule A".

Before turning to the covenants contained in the Deed it is convenient to note its statutory setting. The Kosciusko State Park Act 1944 (N.S.W.) ("the Act") permanently reserved certain lands for a State park to be known as the Kosciusko State Park (sec. 3). Section 4 constituted the Kosciusko State Park Trust, and the Minister was thereby appointed a member and Chairman of the Trust. By sec. 5(1) there is conferred upon the Trust, subject to the Act, the "care, control and management of the Kosciusko State Park". Section 10(1) of the Act provides that "[n]o land within the Kosciusko State Park shall be sold or leased or otherwise dealt with except as provided in this Act...". Section 11(3) of the Act provides:

"The Minister may -

• (a) grant leases of land within the Kosciusko State Park for the purpose of -
  • (i) the erection thereon of accommodation hotels or accommodation houses;
  • (ii) the provision thereon of facilities and amenities for tourists and visitors;
• (b) grant leases of land within the Kosciusko State Park on which accommodation hotels or accommodation houses have been erected or facilities and amenities for tourists and visitors have been provided."

It would seem that the Deed was executed by the Minister in exercise of the powers conferred by sec. 11(3) of the Act. By cl. 2 of the Deed, the parties declared and acknowledged that:

"... the demised premises include lands on which some facilities and amenities for tourists and visitors to the Park have been provided and they include lands which are intended to be used by the lessee for the purpose of the erection thereon of accommodation hotels or accommodation houses and the provision thereon of further facilities and amenities for tourists and visitors and in particular (but without limiting the generality) for the purposes hereinafter more particularly defined."

The Trust's responsibility for the care, control and management of the Park is reflected in various provisions of the Deed including cl. 4(11) which relevantly provides:

"That neither the lessee nor any sub-lessee or licencee [sic] will construct nor permit to be constructed buildings or other improvements without the consent of the Trust provided always that as regards the lessee such consent shall not be required in respect of minor buildings or improvements necessary or desirable for the normal use operation or enjoyment of the demised premises..."

It was accepted on behalf of the Commissioner that the Minister and the Trust were independent legal entities with independent powers and functions under the Act. Specifically, counsel for the Commissioner declined to argue that the Minister and the Trust had entered into the Deed as agents either for the Crown in right of the State of New South Wales or for the State of New South Wales and that the Deed should be construed in that context.

It is apparent from the Deed that the parties contemplated and intended that improvements

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would be made on the land. Clause 2, to which reference has already been made, constitutes an acknowledgment that the purpose of the lease, at least in respect of some of the land, is "the erection thereon of accommodation hotels or accommodation houses and the provision thereon of further facilities and amenities for tourists and visitors". Clause 4(8) provides that improvements, both those "existing at the commencement of the lease" and "[a]ll other improvements brought or made... before the expiration or sooner determination" of the lease shall belong to the "lessor in right of the State of New South Wales". The contemplated and intended improvements are the subject of additional express provisions which take different forms. Clause 4(9) obliges the taxpayer to "commence and thereafter diligently proceed with and complete" certain specified works, including new top and bottom stations for the then existing chairlift, a new hotel, a car park, new access roadways, a general store and a new T-bar. Clause 4(10) provides that "the lessee may by way of further improvement... but subject to the approval of the Trust in regard to plans specifications and relevant details" effect specified improvements. Clause 4(7) is similar in form to cl. 4(10) and provides that "[t]he lessee may in connection with any use improvement or development of the demised premises authorized by these presents and subject as hereinafter appearing with the consent in writing of the Trust" do certain specified things and provide certain specified services and facilities, subject to a proviso not here relevant dispensing with the consent of the Trust in relation to minor maintenance, repair, replacement etc.

Clauses 4(7) and (10) are in terms the grant of consent to the making of the improvements specified in those clauses. By imposing an obligation to effect specified improvements cl. 4(9) imports consent to the making of the required improvements. However, none of the improvements the subject of this appeal fall within those clauses. They are said to fall within cl. 4(5) and (6), the terms of which are as follows:

"(5) The lessee shall not (without the written consent of the Trust) use the demised premises otherwise than for any purposes provided for in any covenant by the lessee herein contained or for the conduct of an Alpine and Summer Tourist Resort and Village or for purposes reasonably incidental thereto as hereinafter provided including the sale of liquor.

(6) Purposes incidental to the aforesaid use of the demised premises by the lessee are:

• (a) Hotels Motels Restaurants Boarding and Residential Establishments and holiday premises.
• (b) Residential Clubs (provided always that the constitution of any such Club shall first be approved in writing by the Trust).
• (c) Residences for persons bona fide permanently employed or engaged in business on the demised premises and for their families.
• (d) Shops, stores, garages, service stations, parking areas and other necessary or desirable business and commercial premises.
• (e) Caravan Parks and camping areas.
• (f) Provision for transport of and transport facilities for members of the public and goods.
• (g) Provision of adequate water, electricity, sewerage, drainage and other utility services.
• (h) Provision of facilities for ski-ing, skating, golf, bowls, tennis, squash racquets, swimming, riding, fishing and for such other sports and games appropriate to the Park as the Trust may in writing approve and for instruction in all such sports and games as aforesaid and the supply or hire of all equipment therefor.
• (i) Ski tows, Ski lifts, passenger carrying ropeways and other appropriate means of uphill transport.
• (j) Provision of such other amenities facilities and services for the public as the Trust may from time to time in writing approve."

In argument on behalf of the Commissioner reliance was placed on the difference in form between cl. 4(5) and 4(6), on the one hand and cl. 4(7), 4(9) and 4(10), on the other hand. In particular it was argued that cl. 4(5) and 4(6) merely identified the permitted uses of the land,

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and that permission to use leased land for specified purposes does not, without more, import permission to make improvements for the specified purposes. So much may be accepted, but permitted use provisions, like any other provision in a written document, must be construed according to their terms and as part of the entire document. Clause 4(5) permits the land to be used "for the conduct of an Alpine and Summer Tourist Resort and Village" and "for purposes reasonably incidental thereto". By cl. 4(6) the incidental purposes are comprehensively defined. Certain of the incidental purposes are expressed in a manner which necessarily comprehends the making of improvements therefor. Paragraph (g) speaks of the provision of adequate water, electricity, sewerage and drainage. In terms the paragraph recognises that then existing utility services may not be adequate and authorises the provision of further services. The nature of those services is such that their provision necessarily requires the doing of work on the land, that is, making of improvements. Paragraphs (h) and (j) permit the land to be used for the provision of sporting, gaming and other services and facilities as the Trust may approve. That permission necessarily comprehends the making of improvements approved by the Trust answering to the descriptions contained in those paragraphs.

Although the other paragraphs of cl. 4(6) do not, either by their terms or by the nature of the services and facilities therein referred to, necessarily involve permission to make improvements for the purposes therein specified, they must be read as part of the entire document. Clauses 2 and 4(8) acknowledge that some improvements had been made at the time the lease was granted. It appears from cl. 4(9) that there were in existence when the lease was granted a chair lift, an hotel, a sewage disposal plant, some facilities for the sale of petrol, and some ski trails. It appears from the Third Schedule to the Deed which specified work required to be done to existing improvements that there were also a number of lodges, a chalet, a shop, and a ski hire building. Additionally it was contemplated that there would shortly come into existence the improvements which were required by cl. 6(9), and that there might come into existence the improvements authorised by cl. 4(7) and 4(10). Although the existing improvements, the required improvements and the improvements authorised by cl. 4(7) and 4(10) could serve one or more of the purposes specified in para. (a), (b), (c), (d), (e), (g) and (i) of cl. 6, it is not possible to read those paragraphs as doing no more than permitting the use of those improvements for the purposes specified. The paragraphs must be read in the context that the declared purposes of the lease included the purpose of erecting "accommodation hotels or accommodation houses and the provision... of further facilities and amenities for tourists and visitors..." (cl. 2). Within that context the necessity to read the paragraphs as encompassing permission to provide facilities over and above those existing and those the subject of cl. 4(7), 4(9) and 4(10) may be illustrated by reference to para. (a) of cl. 4(6) which identifies, inter alia, hotels as a purpose incidental to the use of the land for the conduct of an Alpine and Summer Tourist Resort and Village. As has been mentioned, there was at least one hotel in existence when the lease was granted. Paragraph (d) of cl. 4(9) obliged the taxpayer to erect an additional hotel "to cost and be of a value of not less than £ 80,000 to be located below the present Lodge Hotel and completely separated from it...". No provision of the lease other than para. (a) of cl. 4(6) authorised the erection of additional hotels. Yet by cl. 2 the parties declared that part of the land was "intended to be used by the lessee for the purpose of the erection thereon of accommodation hotels...". Unless para. (a) of cl. 4(6) is construed to include the provision of additional hotels a declared purpose of the lease could be effectuated only to the extent of the erection of the one hotel required by para. (d) of cl. 4(9). Accordingly the incidental purposes authorised by para. (a), (b), (c), (d), (e), (g) and (i) of cl. 4(6) must be read as encompassing the provision of services and facilities as therein specified in addition to those in existence when the lease was granted, but not limited to those services and facilities which would come into existence as a result of the obligation in cl. 4(9) or as a result of the authorisation by cl. 4(7) and 4(10).

Permission to use land for the provision of services and facilities in addition to those in existence at the time when the lease is granted necessarily imports the lessor's consent to the making of improvements answering the description of those services and facilities,

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unless some specific provision is made requiring the lessor's further consent. In the present case there is no such requirement. By permitting the taxpayer to use the land for the purpose of providing further services and facilities as specified in the various paragraphs of cl. 4(6), but not limited to those the subject of cl. 4(7), 4(9) and 4(10), the Minister, as lessor, consented to the making of improvements answering the descriptions contained in those paragraphs as effectively and as positively as he consented to the improvements set out in cl. 4(7), 4(9) and 4(10).

In this context it is convenient to deal with the further argument made on behalf of the Commissioner that any consent by the Minister contained in cl. 4(5) and 4(6) was conditional upon the Trust's consent to the particular improvements and therefore did not take effect until after the relevant date. There is some ambiguity in the notion that consent takes effect. Consent may be given, withheld or withdrawn. Parties to an agreement may provide that consent will be given if certain conditions are fulfilled. In that event consent is given (and takes effect) when the conditions are fulfilled. So too consent may be limited in the sense that the subject matter of the consent is to be further defined. Where that further definition depends on the act of a third party it may be accurate to speak of the consent taking effect upon the doing of the relevant act by the third party, but that does not mean that consent is given when that act occurs. In the present case, although cl. 4(11) requires the taxpayer to obtain the consent of the Trust to the construction of "buildings or other improvements" that requirement is simply the further definition of the improvements to which the Minister's consent was given by cl. 4(6). That consent was given when the lease was granted.

All the improvements in respect of which proportionate deductions were claimed were improvements falling within cl. 4(6) save one which is said to be referable to cl. 4(5). That latter improvement is described in the joint judgment of Toohey and Wilcox JJ. as a "small item for landscaping". It is therefore necessary to consider whether cl. 4(5) extends permission to the making of improvements beyond those set out in cl. 4(6). In our view it does not. The permission granted by cl. 4(5) is to conduct an enterprise and to execute incidental purposes thereafter comprehensively defined in cl. 4(6). Permission to conduct an enterprise does not carry with it permission to make improvements for the purpose of that enterprise. In so far as cl. 4(5) permits the making of improvements it does so by permitting incidental purposes which comprehend the making of improvements. Accordingly, improvements effected by the taxpayer cannot be said to have been made with the consent of the Minister given by cl. 4(5) unless that consent is also to be found in cl. 4(6).

Although cl. 4(6), 4(7), 4(9) and 4(10) have been identified as provisions carrying the Minister's consent to the making of improvements covered by those subclauses they are not the only provisions in the Deed which contain that consent. The primary purpose of cl. 4(11) is to give the Trust control over the land by requiring the taxpayer to obtain the Trust's permission for the construction of buildings and other improvements, but the clause is subject to a proviso that "such consent shall not be required in respect of minor buildings or improvements necessary or desirable for the normal use operation or enjoyment of the demised premises". In the context of the Deed as a whole, that proviso must be construed as importing the consent of the Minister and the Trust to minor improvements. A "small item for landscaping" would necessarily seem to be a minor improvement desirable for the normal enjoyment of the demised premises, and accordingly was made with the consent of the Minister given in the Deed.

It was also argued on behalf of the Commissioner that if the Minister's consent was to be found in cl. 4(5) and 4(6) that consent was not written consent, or alternatively was not written consent within the meaning of sec. 83AA(4) and 88(2) of the Assessment Act. It was not disputed that the requirements of sec. 83AA(4) and 88(2) may be satisfied by consent contained in a written lease, as was stated by Jacobs J. in
G.J. Coles & Coy. Ltd. v. F.C. of T. 75 ATC 4128 at p. 4136; (1975) 132 C.L.R. 242 at p. 256 where his Honour observed in relation to sec. 88(2) of the Assessment Act that "(s)uch a consent may appear in the lease itself or may appear in a separate written instrument". Rather it was put that any consent of the Minister to be found in

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cl. 4(5) and 4(6) was implied consent and thus not in writing. Alternatively, it was argued that the Assessment Act requires express consent.

There is some difficulty inherent in the expression "implied consent" in so far as that expression may convey the idea that although consent was not actually given it is to be regarded as having been given. That latter idea is perhaps better comprehended in the expression "presumed consent". However, the consent contained in cl. 4(5) and 4(6) is not presumed consent but actual consent. Clause 4(6) is the elaboration of the permission granted by cl. 4(5) to use the land for purposes incidental to the conduct of an alpine and summer tourist resort and village. Permission is co-extensive with consent. The plain meaning and effect of cl. 4(5) and 4(6) when the lease is construed as a whole is that the Minister thereby, without reservation to himself as lessor of any further say as to what improvements would be effected, permitted the taxpayer to effect improvements answering the description of the various services and facilities covered by cl. 4(6). The permission was express permission, notwithstanding that a process of construction is necessary to ascertain the extent of the Minister's consent, and it was written consent because it was contained in the Deed.

The Minister's consent to the improvements in respect of which proportionate deductions were claimed was given in writing by the Deed made on 29 June 1962, and the conditions of sec. 83AA(4)(a) and 88(2)(c) of the Assessment Act are thus satisfied. It is therefore unnecessary to consider the further argument of the taxpayer based on sec. 83AA(4)(b). The appeal should be allowed, the order of the Full Court of the Federal Court of Australia set aside, and in lieu thereof it should be ordered that the appeal to that Court be dismissed with costs.